ACRA affirms AA+(RU) to the Republic of Tatarstan, outlook Stable

The credit rating of the Republic of Tatarstan (hereinafter, the Republic of Tatarstan, the Republic, the Region) is based on a highly developed regional economy, high level of control over budget spending and high share of the development budget in the spending structure, as well as the Republic’s direct debt long-term structure (comprising fiscal loans) and minimal risk associated with its servicing. In ACRA's opinion, the possibility that the Republic’s authorities may provide targeted financial aid to companies and financial institutions of strategic importance for the economy or those with significant dependence on the Region’s budget constitutes a limiting factor for the credit rating.

The Republic of Tatarstan is part of the Volga Federal District. The Region’s population is 3.89 mln people (2.7% of Russian population). The Republic’s GRP amounts to around 2.8% of the total GRP of the Russian regions. The Region’s economy is based on diversified industrial production with a high added value. Thus, the Republic’s economy does not rely on economic cycles. There are two special economic zones (SEZ) in the Republic: Alabuga (industrial production profile) and Innopolis (technology and innovation profile).

Key rating assessment factors

Obligations of enterprises fully or partially owned by the Republic affect the Region’s debt load assessment. ACRA takes into account that the Region’s authorities may provide targeted financial support to companies and financial institutions of strategic importance for the Republic’s economy or to those with a significant dependence on its budget.

The Republic’s government debt (totaling RUB 94.5 bln as of November 1, 2018) comprises budget loans (90% of the total debt) and guarantees (10% or RUB 9.6 bln, expiring in 2034) that the Republic issued in 2005 in favor of Kamaz PTC covering its obligations to the federal budget.

The budget loans repayment schedule is comfortable: nearly the total amount of the Republic’s debt is due to be repaid in 2023–2036. The debt service costs of the Republic do not exceed 0.1% of the operational balance of the budget.

A well-balanced budget with high self-sufficiency of revenues and high control over spending. According to the current version of the budget law (as of October 24, 2018), in 2018, the budget of the Republic will be executed with a deficit of 6.9% of tax and non-tax revenues (RUB 14.9 bln). The planned regional budget expenditures will be financed from current incomes and cash reserves on the budget accounts, without recourse to debt financing. ACRA notes that the amount of Republic’s liquid funds showed steady growth in 2018.

Key assumptions

In case of need, the Region’s authorities may provide financial support to companies and financial institutions of strategic importance for its economy or those with significant dependence on its budget;

Decrease in the share of capital expenditures in the forecast period against 2017-2018;

Budget execution without the need for commercial debt financing in 2018-2019.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

Increase in transparency and predictability of relations between the Republic and companies (including financial institutions) of strategic importance for its economy and those with significant dependence on its budget.

A negative rating action may be prompted by:

Provision of extraordinary support by the Republic’s authorities to its public sector companies and financial institutions;

The credit rating was assigned based on the data provided by the Republic of Tatarstan, information from publicly available sources (the Ministry of Finance, the Federal State Statistics Service, and the Federal Tax Service), as well as ACRA’s own databases. The credit rating is solicited, and the Government of the Republic of Tatarstan participated in its assignment.

No material discrepancies between the data provided and the data officially disclosed by the Republic of Tatarstan in its financial report have been discovered.

ACRA provided no additional services to the Government of the Republic of Tatarstan. No conflicts of interest were discovered in the course of credit rating assignment.

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